Is it possible to pay monthly for car insurance?
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UPDATED: Jul 14, 2021
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When a driver purchases a new car insurance policy, he typically has multiple options for making payment. He can pay the entire policy in a single payment or choose installments. Installments usually are paid either bimonthly or monthly.
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If one of your car insurance objectives is to pay as little as possible, you should do your best to take care of your premiums with a single payment. Insurance companies are happy to give you a lower price with the single payment option because they don’t have to worry about whether or not you’ll be making future payments on time.
As an interesting side note, the price you get from a typical car insurance quote is the bottom line price assuming you’re going to make a single payment. When you choose to pay with installments, your price goes up accordingly.
Insurance Company Rationale
Insurance companies charge more for installment payments for couple of reasons. The first comes by way of the cost of processing financial transactions.
The more transactions an insurance company is conducting, the more resources they are dedicating to that portion of their business.
That costs them money by way of man-hours and processing costs. If they can convince a good number of their drivers to make single payments, it costs them less to do business.
Perhaps more importantly, insurance companies want to encourage their drivers to use the single payment option because it reduces insurance company risk. Your insurance company as a means of earning a profit invests when you pay your premiums that money. Investing is necessary because the average driver’s premiums will never be able to cover the cost of a major accident.
If your insurance company has all of your premium upfront, it has more money to invest. That increases the likelihood of a better return and lowers the risk for the insurance company. And with more than 1.3 6 million registered cars on the road, according to 2010 statistics from the Federal Highway Administration, anything they can do to reduce risk is good for business.
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Who Benefits from Monthly Car Insurance
The driver most likely to benefit from a monthly insurance policy is one with limited financial resources who cannot afford a lump sum payment. Examples would be those who are working minimum-wage jobs, college students, single parents on tight budgets, and so on. By being able to pay a lower amount each month for car insurance, these types of drivers are better able to budget. However, in the long run it’s costing them more money.
For example, if you purchased a six-month policy at a cost of $600 it might mean a significant outlay of cash under a single payment option. If you elected to pay monthly, your insurance company might assess a $10 convenience fee that is added to your monthly payment.
Paying $110 may be easier than a single $600 payment, but in the end, you’ll be paying $660 for your insurance. Over the course of decades of driving, that adds up to a lot of money.
Learning to Save Money
While it’s true there are some drivers who feel they need to use monthly payments in order to have reasonably priced car insurance, there is a way to break the cycle and eventually be able to cover your insurance premiums with a single payment. It requires discipline, for sure, but you’ll save yourself money in the long run.
According to data from the U.S. Census Bureau, the average American spends more than $2,400 annually on entertainment and another $435 on alcoholic beverages. If a driver could go just three months without those expenditures and instead put that money in a savings account, he would have more than enough to pay his renewal with a single payment.
After that, the money he would normally use for monthly payments could be put in a savings account in anticipation of the next renewal policy. In the end, they would be saving more than he is spending.
In the end, monthly car insurance exists for a specific group of people in the market. It is an easier way to afford your car insurance when your budget is tight.
But if you can manage to overcome your tight budget and get to a single payment you will be better off.
Enter your ZIP code into the FREE search tool on this page and you’ll have access to multiple car insurance quotes from some of America’s most well-known companies!